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If the calculation questions are made in Excel it would be great. An airline company is faced with having to replace its entire fleet of
If the calculation questions are made in Excel it would be great.
An airline company is faced with having to replace its entire fleet of aging airplanes. In deciding upon a new fleet, the airline can choose between two types of aircraft. Type 1 is a traditional airliner, and Type 2 is a newly developed aircraft, which consumes less fuel and requires less maintenance. The data for each type of aircraft are listed below: The operating costs have been calculated based on assumptions about the use of the planes as measured in kilometers flown. This is because both energy consumption and other operating costs are assumed proportional to the amount of kilometers flown. The company uses a weighted average cost of capital (WACC) = 9% per year. Tax and depreciations are ignored. Which type of airplane should the company choose if each has a useful life of 10 years? After reviewing the new airplane design's advances, the airline believes the new plane's useful life may be 15 years instead of 10. Does this adjustment impact the purchase decision if the existing design's useful life remains unchanged? The operating costs have been calculated based on the assumption that the cost of fuel will not change in the future. Management believes the cost will be more volatile than many expect, so it would like to know how sensitive the investment calculation is to changes in the cost of fuel (annual energy consumption). If the useful lives of the airplanes remain at 10 years for both designs, how much would the fuel price have to change for the two aircraft types to cost the same amount of moneyStep by Step Solution
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